What's black and white and green all over? Another dodgy dossier

You will remember that, in 2002, the Government produced an intelligence dossier about Saddam Hussein's weapons of mass destruction. In his foreword to the document, Tony Blair wrote that the dossier "discloses that his [Saddam's] military planning allows for some of the WMD to be ready within 45 minutes of an order to use them". You will also remember that there was, to put it gently, a fuss about these and other claims made by the Prime Minister.

Now consider a more recent claim by Mr Blair, about something completely different. After Sir Nicholas Stern's report, The Economics of Climate Change, appeared at the end of October, the Prime Minister warned: "The consequences for our planet are literally disastrous … without radical international measures to reduce carbon emissions within the next 10 to 15 years." This was the eco-equivalent of the 45 minutes — frightening, dramatic, and, it increasingly appears, "dodgy".

Mr Blair's version of what Stern says is, in fact, more restrained than Sir Nicholas himself. The Stern report's summary declares: "If we don't act, the overall costs and risks of climate change will be equivalent to losing at least five per cent of global GDP each year, now and for ever.

"If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 per cent of GDP or more… Our actions now and over the coming decades could create risks … on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century."

When these striking assertions first appeared, they were, of course, virtually unquestioned. Most of the media, especially the BBC, had been against the Iraq war, and so were hypercritical of government claims on the subject. With Stern, it was the opposite. Most of the media, especially the BBC, are highly credulous about prophecies of environmental doom, so they lapped up Stern, bawling at politicians about why they weren't taking enough action now.

Besides, most reporters and commentators on public affairs — including, I hasten to admit, myself — are neither scientists nor economists; so it is easier for us just to repeat the claims of people such as Stern, sexing them up as we go along.

But there are people in the world who do understand the economics of climate change, and as, over the past two months, they have worked their way through the 700 pages of Sir Nicholas's gloomy thoughts, they have begun to get cross. It is notable that none of these experts is a climate-change denier. Some, indeed, were warning about the dangers 30 years ago.

Several have now produced critiques of Stern. As they read his report, some found that he used their own work — the document is a review of the literature on the subject, not a new piece of research — but played fast and loose with it.

Professor William Nordhaus, for example, perhaps the doyen in the field, is affronted to find his own projections beyond the year 2100 treated as totally accurate by Stern, when he himself has always insisted that such projections were "particularly unreliable".

Professor Richard Tol finds Stern making free with his work on rising sea levels to warn about the terrible damage that would cause, without making any allowance, as Tol does, for the fact that people would find ways of adapting to that rise.

Professor Robert Mendelsohn, of Yale, notes that Stern assumes that the economic damage from hurricanes will rise strongly each year, when we already know that the damage last year was much less than the damage in the year that Katrina struck.

The dons get so piqued by Stern that some resort to the deadliest weapon of academic warfare — the footnote. Here is Prof Tol on Stern's calculations about the control of emissions: "This can be found in any textbook on cost/benefit analysis. It is puzzling that economists at HM Treasury [where Sir Nicholas now works] can make such basic mistakes."

Tol, in general, is the rudest. The report, he says, is "alarmist and incompetent". Others put it more politely, but in their way are just as devastating. Professor Mendelsohn points out that Stern's calculations about the future costs of climate change might easily be wrong by trillions of dollars. Sir Partha Dasgupta, of Cambridge, says: "Where the modern economist is rightly hesitant, the authors of the review are supremely confident."

To give credit where credit is due, some of these objections were aired this week in a cautious but decent little BBC Radio 4 programme called Investigation. Imagine what a fanfare the same sort of programme would have got if it had been an exposé of the Iraq dossier.

What really upsets Stern's critics is his treatment of what economists call the "discount rate". This is sometimes described as the "price of time". It is the method used to calculate the relative weight of future and present pay-offs. It tries to allow for the fact that a benefit foregone now has a cost, and that a benefit in the future is worth less. It is a more systematic version of the idea that a bird in the hand is worth two in the bush.

Sir Nicholas Stern will have none of this. With the jutting lower lip of one who believes in the righteousness of his cause, he asserts that it would be quite wrong, in our calculations, to do anything to disadvantage future generations. He therefore has a discount rate of 0.1 per cent (where a normal economist might have one of, say, four per cent). To ensure the future, he argues, we must pay almost everything now.

This sounds visionary and altruistic, but it has some curious effects. Sir Partha Dasgupta applies the Stern discount rate to other walks of life. Suppose, he says, that the British economy today followed that discount rate: we would have to invest 97.5 per cent of what we produce in saving for future generations. At present, we invest 15 per cent. The idea that people should starve now for the sake of their great-grandchildren is, he says, "patently absurd".

And before anyone says that the rich today must make sacrifices for the poor tomorrow — which sounds eminently reasonable — the critics point out that, by Sir Nicholas's own calculations, future generations will be much richer than our own. Stern predicts that, by 2200, the annual consumption of the world will be $94,000 per person (at today's prices). In 2006, it was $7,600. Sir Nicholas is asking us to make huge sacrifices today for people who, he himself says, will on average be 12 times better-off than we.

So when Sir Nicholas speaks of losing five per cent GDP each year "now and for ever", the critics can show that this is certainly not happening now and that "for ever" cannot be calculated. What they are saying, though in more careful, academic terms, is that Stern always uses the most doom-laden projections, omits the numerous qualifications on the other side of the ledger, employs figures that don't add up and advocates a shock to the present world economy so great that it would make the Great Depression look like a hedge fund's Christmas party.

What is the best approach to climate change? I cannot say, but what is clear is that the many, many words of Sir Nicholas Stern have more to do with the politics of now than the needs of "for ever". This is, to adapt a phrase much loved by environmental zealots, an inconvenient truth. Those wanting to save the planet must look elsewhere.